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Queen's University at Kingston 


queeN's uNiveRsiT? 

Presented by 

fiJcd'ona,! LtbHAHi. 









Probable Effect Upon Canadian Credit of the 
New Doctrine of Provincial Omnipotence. 


The interesting letters on the Electric Power legislation 
of the Ontario Government, which recently appeared in the 
" Financial Post " of Toronto, are here reproduced in con- 
densed form. 

The new doctrine that a Provincial Legislature is omni- 
potent within its sphere, its legislation, no matter how 
vicious or contrary to the general interest, being no longer 
subject, if technically intra vires, to disallowance by the 
Federal authority, is likely to be attended with grave con- 
sequences to Canadian credit. The other day in Quebec 
the Legislature re-wrote a dead man's will. The Supreme 
Court at Ottawa said it was wholly improper legislation 
and should have been disallowed ; but, as it was 
within the competence of the Legislature, the Minister of 
Justice at the time let it become law. In New Bruns- 
wick, the Legislature recently taxed railways operating 
within the Province to the extent of three per cent, of their 
gross earnings, but offered to remit the tax to any road that 
used coal from a certain mine, belonging as a matter of fact 
to certain politicians. This Act is still on the statute-book. 
In Ontario, when the Liberals were in office, the Legislature 
levied a tax of 100 per cent, of the value of their product 
upon the Sudbury nickel mines, but was willing to remit 

it if they agreed 10 have their crude nickel smelted to purity 
within Ontario — really at Hamilton in a refinery in which 
prominent politicians were interested. Mr. Mills, who was 
Minister of Justice, threatened to disallow the Act if an 
attempt was made to enforce it. In the Florence mining 
case, the Whitney Administration determined a question 
of title that was before the courts. Whether the Florence 
company had or had not a just claim to the minerals at the 
bottom of Cobalt Lake is immaterial; the point is that the 
legislature settled a controversy in litigation by passing an 
Act which, according to Mr Aylesworth, the present Minis- 
ter of Justice, amounted in effect to " confiscation without 
compensation"; yet, because it was intra vires, he ruled 
that the Act must stand. 

And now we have the Electric Power Acts of the same 
Legislature which prohibit aggrieved persons from appealing 
to the Courts for redress, validate contracts which a 
Superior Court judge has held to be invalid, and damage 
vested interests by setting up Government competition in 
the transmission of power from Niagara, notwithstanding 
that the Government, through its Park Commission, had 
expressly covenanted not to compete. 


In constitutional as in other affairs, mischief once done 
has a tendency to perpetuate itself; and unless the Judicial 
Committee of the Privy Council sets limits to the authority 
of the Provincial Legislatures, or limits are imposed by 
an amendment to the British North America Act, we 
are certain to find ourselves, sooner or later, in a serious 
predicament. The British investor, who on public and 
private account has over 1,500 million dollars out in Canada, 
is evidently alarmed at the recent doings of the Legislatures, 
more especially at Sir James Whitney's Power legislation. 
He is nervous, too, over the numerous public-ownership 
schemes now on foot throughout the Dominion, for, in his 
opinion, the atmosphere surrounding municipal government 
here is not always the purest nor the men elected to carry on 

such government always the best. If, on top of the civic 
mismanagement and corruption which he expects to witness, 
the Local Legislatures are to be at liberty to pass hocus-pocus 
legislation of the sort just described, injuring private in- 
vestments and preventing the victims from applying to the 
courts for relief, he may suddenly conclude that 
this is not any too safe a place for his money; and 
then what ? 

It is easy to say we could borrow from the United 
States or from France. The French Government closely 
scrutinizes every foreign project that goes to Paris for 
funds, and, as a rule, the French capitalist expects more 
for his money than the British; whilst our American neigh- 
bors require all their spare cash for their own works 
of development. A Toronto newspaper points to the large 
sum on deposit in Canadian savings banks and asks, " Why 
not borrow from our own people"? The obvious answer is that 
Canadians cannot afford to lock up their money in Provincial 
or municipal bonds since they can turn it to better account 
in commercial and industrial enterprises. Sir James Whitney 
has been trying for some time to sell $3,500,000 of Pro- 
vincial securities in Canada for the building of his trans- 
mission lines ; but as yet has not succeeded in disposing 
of much more than half, simply because local capital prefers 
and is able to find a more remunerative field. 


We in Canada are aware that there is scarcely any limit 
within reason to our capacity for bearing debt and taxes. 
A wonderful development is visible everywhere. The exodus 
of Canadians to the United States has greatly diminished 
and the movement of population is now in our favor, 
American settlers flocking into the Canadian West at the 
rate of 70,000 a year, with working capital estimated at 
$1,000 per head, or $70,000,000. Meanwhile immigration 
from the United Kingdom and Continental Europe has 
attained unprecedented proportions. New industries are 
springing up and old ones expanding as never before. Bank 

deposits are increasing, domestic and foreign trade growing, 
and capital coming in for investment in sums that a few 
years ago would have been deemed quite beyond our reach 
— these and other evidences of a healthy material develop- 
ment are plain to everybody, and withal we are merely on 
the threshold of the great future that awaits us. 

These things are obvious enough to us on the spot, but 
it is only natural that the British investor should be inclined 
to look at the other side of the shield, to regard reckless and 
uncontrolled Provincial and municipal legislation as a menace, 
and to press the question why we owe so much more, man for 
man, than the Americans, by whose standards he usually 
judges us. 

Our net interest-paying Federal debt at the present time — 
that is, our net debt less the Dominion notes in circulation — 
is about $37 per head for a population of 7,000,000. That 
of the United States is $10 per head. A large proportion, 
seven-ninths, of their interest-bearing debt is in 2 per cent 
bonds, whereas our bonded debt pays higher rates. The 
result is that the interest charge on the Federal debt of the 
United States in 1908 was $21,000,000, while the interest 
charge on ours was $11,000,000, or over half. If we continue 
to augment our debt in the next few years as rapidly as we 
have augmented it during the last two or three, since the 
construction of the Government section of the new Trans- 
continental Railway was begun, we shall soon owe half as much 
as the United States, for their debt is being reduced, while 
our annual interest charge will considerably exceed one-half 
of theirs: which would be a grave enough condition of affairs. 

I am not concerned at present, however, with the financial 
situation of the Dominion, but with that of the Canadian 
Provinces and municipalities, on the one hand, and of the 
American States and municipalities, on the other. The indebt- 
edness of the latter was compiled in 1902 by the census offi- 
cials when it amounted to $23.75 per head. Unfortunately 
there is no way of ascertaining the debts of our Provinces and 
municipalities. The Dominion census officials take no ac- 
count of them, and the statements issued by partisans on 

one side or the other can scarcely be depended on. It is 
tolerably safe to say, however, that they are 40 or 50 per 
cent, greater per head than those south of the line. Apart 
from their direct debts, the Provinces, following the Ottawa 
example, are taking to contracting indirect liabilities by 
guaranteeing railway bonds, a practice forbidden to all 
or nearly all the States by their constitutions. The amount 
of bonds guaranteed by the Provinces to date is $40,000,000. 
An answer to the question why we are spending so much 
more than the Americans is, I think, afforded in part by 
the following brief recital showing how we have enlarged 
the spending powers of the Provincial Legislatures, and 
incidentally of the municipalities, whilst the spending powers of 
these bodies in the United States have of late been greatly 


The fathers of Confederation started work in 1864. At 
that time the American Civil War was raging. Outwardly, 
it was a collision between State Rights and the tendency 
towards centralization or nationalization. The State Rights 
men of the South, who desired to retain human slavery, 
were driven by the exigencies of their argument to contend 
that each State was and had always been a sovereign body, 
and that the Federal authority was the creation of the States; 
consequently, to preserve their autonomy, the States had a 
right to nullify or refuse obedience to such Federal laws as 
they disliked, and, as a last resort, to withdraw from the 
Union. The framers of Confederation therefore determined 
to make our Provincial Legislatures wholly subordinate 
bodies by comparison with the American State. As Sir John 
Rfacdonald put it: — 

" The United States commenced at the wrong end. They 
declared by their constitution that each State was a sovereignty 
in itself and that all the powers incident to a sovereignty be- 
longed to each State, except those powers which were con- 
ferred upon the General Government and Congress. Here, 
we have adopted a different system. We have strengthened 
the General Government. We have given the General 

Legislature all the great subjects of legislation. We have con- 
ferred on them, not only specifically and in detail, all the 
powers which are incident to sovereignty, but we have ex- 
pressly declared that all subjects of general interest not dis- 
tinctly and exclusively conferred upon the Local Governments 
and Local Legislatures shall be conferred upon the General 
Government and Legislature. We have thus avoided that 
great source of weakness which has been the cause of the 
disruption of the United States/' 

The dominant note of all the Confederation speeches was 
that the individual Provinces were to have no such length of 
tether as the individual States. Their powers, on the con- 
trary, were to be so circumscribed that it would be impossible 
for them to advance the doctrine of Provincial Rights in any 
extreme form or set themselves up as local sovereigns within 
the general commonwealth. The principal means for thus 
reducing them to an inferior and more humble position were 
that the Lieutenant-Governors of the Provinces, instead of, 
as on the other side, being chosen by the people, should be 
appointed by the Federal Government and should have power 
to reserve Provincial legisla^on for the consideration of the 
Federal authority; that the Judiciary in the Provinces, instead 
of being selected by the people or the authorities of the Prov- 
inces, should likewise be appointed from Ottawa; last but not 
least, that the Federal Government should have the power 
to disallow Provincial legislation. It is probable that in 
granting the Provinces yearly subsidies from the Federal chest 
toward defraying the cost of local government, the founders 
may have supposed that they could thus be rendered more 
tractable and submissive to the Federal 'Government than an 
American State, which has to meet its expenditure from its 
own resources and in that aspect is entirely independent; but 
one need not press the point. 

Much importance, let me repeat,- was attached to these 
devices for restricting the authority of the Local Legislatures. 
Ours being a written constitution, like that of the United 
States, the Provincial courts would, it was said, frequently be 
invoked to determine constitutional questions; and with a 
Federal judiciary in each Province and a higher Federal 


judiciary in the Supreme Court at Ottawa, the creation of 
which was provided for, no harm could come to national or 
private interests from Provincial usurpation. Lest a case 
arising from doubtful Provincial legislation might not reach 
the courts till some damage had been done, the Lieutenant- 
Governor could hang up all such legislation for review at 
Ottawa; and the Ottawa Ministers had power to disallow, not 
only the Bills which might be reserved by their own officer, but 
any others which they found to be ultra vires or considered 
prejudicial to the well-being of Canada. " This power of 
negative," said Sir John Rose, " this controlling power on the 
part of the Central Government, is the protection and safe- 
guard of the whole system." All the fathers seem to have 
believed with him that it would prevent " any assertion of 
sovereignty on the part of the local governments, as in the 
United States," and also, as Sir Alexander Gait said, " protect 
every private interest that could .give a satisfactory account 
of itself." 


There is nothing in the parliamentary debates or in the 
speeches of the Confederation delegates at Quebec and Char- 
lottetown to show it, yet one is obliged from the nature of the 
case to assume that what the founders had in mind respecting 
the exercise of the power of disallowance was something like 
this — that while the courts should decide such technical points 
as whether an Act of the Provincial Legislature was intra virts 
or not, the Federal Ministers should look more particularly to 
the probable effect of the Act upon the common welfare. If it 
was intrinsically unsound from a moral point of view, it could 
not fail to hurt the country at home and abroad, and should 
therefore be disallowed; and so if it threatened the public 
credit by destroying public or private investments without 
affording compensation. The power of disallowance, in short, 
was to fill the place, as it were, of the Judiciary in the United 
States which decides not merely whether an Act of a State 
Legislature is intra vires or not, but also whether it is or is not 
in accord with the maxims of public policy contained in the 
Federal constitution as well as in the State constitutions, some 


of which were originally taken or deduced from the principles 
of government in Magna Charta and the Bill of Rights. The 
Canadian constitution contains no such precepts for the guid- 
ance of tne Provincial Legislatures; but one can imagine that 
the fathers of Confederation took for granted that, in reviewing 
Provincial Acts, the Federal Ministers would bear them in 
mind and let no Act go that, although intra vires, was obvious- 
ly at variance with them. We must assume that such con- 
siderations were present in the minds of Sir John Macdonald 
and George Brown, or else conclude that those able men, while 
bent on limiting the authority of the Legislatures, — which, as 
they knew, would nearly all consist of but a single Chamber — 
actually invested them with an omnipotence equal, in its 
place and measure, to that of the Imperial Parliament, which, 
as somebody has said, may do anything in the world that is not 
naturally impossible. 

It is scarcely to be believed that the vision of the founders 
was so engrossed by the spectacle of a fratricidal war as 
to hinder them from noting the extreme conservatism of 
the Federal and State constitutions in the United States res- 
pecting private property, contracts, the right of the people 
to appeal to the courts, and other weighty matters falling 
within the purview of our Provincial Legislatures. Not only 
does each State constitution contain elementary provisions 
drawn from pure and undefiled British sources against un- 
principled and dishonest legislation, but the Federal constitution 
contains others; and whenever the occasion arises in the 
ordinary course of justice, the Judiciary, State and Federal, is 
there to see that the State Legislature has not broken them 

In addition, each State Legislature, like Congress itself, 
has two Chambers for the better protection of the public in- 
terests and of the rights of the individual. There is a story 
that, while breakfasting with Washington, Jefferson asked 
him why he had agreed to a Senate. " Why," asked Washing- 
ton, " did you just now pour your coffee into your saucer 
before drinking it?" " To cool it," replied Jefferson, " my 
throat is not made of brass." " Even so," answered Wash- 


ington, " we shall pour our legislation into the Senatorial 
saucer to cool it." Whatever may be said for or against 
second Chambers, no one denies that they are a brake upon 
wild and unjust lawmaking. Yet we are to imagine that the 
framers of the B.N. A. Act, who had resolved to give the 
Provincial Legislatures less rope than the State Legislatures 
enjoyed, gave them a great deal more; in fact, left them to do 
absolutely what they pleased within the bounds of their 
jurisdiction, untrammelled by Magna Charta or even, as Mr. 
Justice Riddell has said, by the Ten Commandments. 


For some time after Confederation the Federal Government 
disallowed Provincial legislation, not only when it was 
ultra vires, but also when it appeared to be contrary to 
good morals or in violation of natural justice and private 
rights. In other instances it called the attention of 
the Provincial Governments to cases where the Acts were 
retroactive in their operation or otherwise improper, and 
counselled them, virtually under threat of disallowance, 
to alter or repeal them. In this way the Federal authority 
exercised for 30 years a more or less active supervision over 
Provincial law-making, but it has now abandoned its veto 
power, except were an Act is ultra vires. That is to say, it now 
confines itself to a function that is discharged, indirectly, just 
as well or better by the courts of law, leaving the general 
interest and all the other higher considerations to their fate, 
and giving the Legislature an absolutely free hand within its 

The story of the circumstances which led to this partial aban- 
donment of a vital Federal prerogative would take us too far 
afield. Briefly, the Liberals, when in control of the leading 
Provincial Legislatures, had urged that disallowance should be 
strictly confined to such Provincial Acts as were ultra vires, and 
had attacked the Conservative Ministry at Ottawa for dis- 
allowing Acts which they deemed objectionable for other 
and equally important reasons; and, on obtaining control of 
Federal affairs in 1896, determined, for the sake of being 


thought consistent, to adopt that policy. In other words, the 
emasculation of the Federal power of disallowance was due 
to the party manoeuvring of the Liberals rather than to any 
belief on their part in the impeccability of a single-chambered 
Legislature. Still less could they have supposed that a prudent 
exercise of the power would be detrimental to genuine Provin- 
cial liberties, to Provincial liberties properly so-called. Such 
uncompromising Liberals as Mr. Edward Blake, Mr- 
Fournier and Mr. Laflamme were, as Ministers of Justice, 
among the keenest critics of Provincial legislation, and 
raised no objection to, but seem to have approved of the 
rule laid own by Sir John Macdonald shortly after Con- 
federation, that such legislation might be disallowed, not only 
for being unconstitutional in the sense of conflicting with 
Federal jurisdiction, but as being prejudicial to the interests of 
the Dominion as a whole — the latter phrase covering the 
moral and utilitarian reasons for setting a Provincial Act aside. 
Mr. Aylesworth says that any one who feels that he has been 
injured by a Provincial statute, which, bad in itself, is intra 
vires and thus, by the new rules, beyond reach of the dis- 
allowance power, has the right of appeal to the people, 
who will, no doubt, see that wrong is righted; but 
obviously that means of obtaining redress is philosophical 
rather than practical. When the United States consti- 
tution was on the anvil, it was suggested that a veto on 
Acts of the State Legislatures should be conferred upon Con- 
gress. It was argued that the placing of such a power in the 
hands of Congress could not fail to offend the local pride of the 
individual States, always jealous of their autonomy; while 
its exercise would produce frequent collisions between the 
Federal and State Legislatures. In the end the better plan 
was adopted of leaving both Federal and State legislation to 
the courts. This was no new thing. On the contrary, it 
dates back to that period in English history when the judges 
were regularly summoned to Parliament to see that the legis- 
lation did not contravene Magna Charta or the dictates of 
fairness and reason. The first English emigrants to America 
were familiar with this system, which existed, in a shadowy 


form, down to the time of Queen Anne, when the theory that 
the courts could annul acts of Parliament for violating what 
was known as the higher or unwritten law, still lingered in the 
popular belief. And as some of the American Colonies 
possessed written charters, it was natural that the people 
should call on the judges to interpret them, and that they 
should adopt the same feature when the written constitution of 
the United States came to be framed. At Confederation the 
danger of letting the Federal Ministry disallow Provincial 
legislation was pointed out by some of the foremost Antis; 
but, as said, the express object of the framers was to render 
those bodies subordinate. Yet they have now T become all- 
powerful within their limits, their legislation when intra vires 
being, like the decisions of the Pope when he speaks ex cathedra 
on certain subjects, absolutely irreformable and final. 


While we have thus been extending the powers of the 
Provincial Legislatures by allowing them to pass any legislation, 
good or bad, that comes into their heads, provided it is within 
their jurisdiction, the powers of the State Legislatures, limited 
as they originally were, have recently been greatly restricted. 
Years ago the individual States went mad on the subject of 
public improvements, and borrowed money for railways, 
canals, local banking and what not, till some landed in the mire 
of repudiation and most were seriously embarrassed. The 
financial credit, not of the States alone, but of the 
Federal Government, was injured; and as the municipalities 
had been equally reckless, there were grave apprehensions 
as to the willingness of the foreign investor to risk any more of 
his money in American enterprises. Fortunately, the people 
came to their senses and determined to reduce the spending 
and borrowing powers of States and municipalities alike. 
From this they proceeded to reduce the cost of legislation by 
substituting biennial for annual sessions of the Legislature, 
simplifying the procedure and so forth. At this stage, too, 
the Federal and State Courts, which previously h^d been 
rather anxious to avoid any appearance of controlling legisla- 


tive activities, began to cuib State and municipal legislation by 
a more rigid interpretation of the constitutions; whilst the 
governors of States were encouraged to a more frequent ex- 
ercise of their veto, which, as a rule, can be over-ridden only 
by a two-thirds majority of the Assembly. 

Take, for example, the case of the State of Michigan. It 
was admitted into the Union in 1837 and at once rushed 
into debt for railways and other local works. In 1850 
another constitution was adopted. In the interval the 
people had learnt from experience that economy is in 
every way preferable to extravagance; and the new consti- 
tution limited the borrowing and spending powers of the 
State Legislature and of the municipal bodies in drastic 
fashion, the provisions in that respect being re-enacted 
in a third constitution adopted in 1908. The State may 
contract debts to any amount for the purpose of repelling 
invasion, otherwise it can borrow only to meet deficits in 
revenue, but such debts shall not aggregate at any one time 
more than $250,000. No scrip, certificate or other evidence 
of State indebtedness shall be issued except for the debts 
above mentioned. The credit of the State shall not be granted 
to or in aid of any persons, association or corporation, public 
or private. The State shall not subscribe to nor be interested 
in the stock of any company, association or corporation. 
The State shall not be a party to or interested in any 
work of internal improvement, nor engage in carrying 
on such work, except road improvement and reforesta- 
tion. Counties may not incur any indebtedness which shall 
increase their total debt beyond 3 per cent of the assessed 
valuation. By the constitution of 1908 cities are left to 
the discretion of the Legislature in the matter of restrictions 
upon their borrowing powers, but the Legislature has the 
thrifty instincts derived from the reign of economy which 
began 60 years ago. 

Note the results. The State has no bonded debt, but has 
a nominal trust-fund debt arising out of a transaction in 
school lands with the Federal Government. The munici- 
palities owe very little. Detroit, the prinicipal city, had 


in 1908 a net debt of less than $7,000,000. Its population 
exceeds that of Toronto, which, nevertheless, has a net 
debt of over $23,000,000, and, in addition, has recently 
authorised the issue of consolidated loan debentures to the 
amount of $6,000,000 for electrical power distribution, a 
filtration plant and a trunk sewer. Including that of Detroit, 
the net municipal and school indebtedness of the State of 
Michigan in 1902 (in every instance I use the latest available 
figures) was $35,000,000. Its population is greater than that 
of Ontario and is growing more rapidly. Yet Ontario in 
1906 had a net municipal indebtedness of $76,000,000. In 
the 20 years from 1886 to 1906 the population of Ontario 
increased from 1,828,000 to 2,142,000, or only 18 per cent, 
which is below the natural growth alone; but the municipal 
debts and the annual aggregate of municipal taxation doubled 
in that period, whilst notwithstanding the great increase 
in the assessment the rate of taxation rose from under 13 
to over 16 mills in the dollar. In Michigan there has been 
no increase of debt or taxation worth speaking of outside 
Detroit and one or two other cities; but there has been an 
immense improvement in the credit of the State since the 
old times when, as the saying was, any man who could find 
a hollow log for keeping the depositors' money could start 
a bank, while the Legislature and municipalities fancied 
that the more they owed the more they we reprospering. 
It is not palatable to a Canadian to have to draw such con- 
trasts as these between the financial condition of Ontario 
and that of a neighboring American commonwealth, but 
there is no help for it. 


Bonusing, as seen, is not permitted by the Michigan con- 
stitution. A few years ago the Legislature voted bounties 
to the manufacturers of sugar from beets grown within 
the State, provided that they had paid not less than $4 per 
short ton to the farmer who raised the beets. The Supreme 
Court of the State, in 1900, declared the Act unconstitu- 
tional on the ground that it involved taxation for a private 


purpose. It pointed out that taxes can be levied only for 
public purposes, to accomplish some end of government. 
The Legislature cannot take the property of A and give it 
to B. nor tax it for B's benefit. The bounties were to come 
out of the]pockets of people not engaged in the manufacture 
of sugar and who had no interest in it. The State itself 
could not carry on such a manufacture and had no right to 
use public funds to enable private individuals to carry it 
on. As Mr. Justice Cooley had said in a similar case, it is 
not in^thejpower of the State, under the name of a bounty 
or under'Jany other cover or subterfuge, to furnish capital 
to 7 set r private parties up in any kind of business or to sub- 
sidize their business after they have entered upon it. The 
discrimination by the State between different classes of 
occupation, and the favoring of one at the expense of the 
rest, whether|that one be farming or banking, merchandizing 
or milling, printing or railroading, is not legitimate legisla- 
tion but an invasion of that equality of right which is a 
maxim of State Government. The State can have no 
favorites. Its business is to protect the industry of all and 
to give all the benefit of equal laws. It cannot compel an 
unwilling minority to submit to taxation in order to keep 
upon its feet any business that cannot stand alone. 

Another of the judges in this case said: " Taxation for 
private purposes is no more legal than robbery for private 
purposes." Let the reader consider for himself how far this 
sound and trenchant criticism is applicable to the sale by the 
Government and municipalities of Ontario of electric power 
to manufacturers in such places as are within reach of the 
Niagara generators, the Government in the first instance 
furnishing the money to defray the cost of that display of 
paternalism in behalf of a favored few.. On the American 
side, the transmission of power from Nisgara is left entirely 
to private enterprise. 


I have quoted this decision of the Michigan Supreme Court 
in order to show how grandmotherly government is viewed 


there. In most of the other States the Legislatures are bound 
down by like constitutional restrictions and they in turn restrain 
the municipalities from rushing into debt for every fleeting 
craze. In some instances the power of the American municipal- 
ities to tax is limited, as with us, to a definite percentage of the 
assessed value; in others, the debt must be restricted to a 
specific sum; in others again, two-thirds or three-fourths of the 
ratepayers voting must vote for a bylaw creating debt. But 
the most effective provision against municipal extravagance 
lies in the State constitutions which, in many cases, forbid the 
State and municipalities from giving money or property of 
any sort and from lending their credit in any manner to private 
corporations or individuals, and, in some States, order that 
the State and municipal debts shall be extinguished within a 
prescribed period. By such means State and municipal 
credit has been rescued from disgrace, and, speaking generally, 
placed on a high basis. The State Governments have well- 
nigh disappeared from the money market, being no longer 
borrowers save occasionally of temporary loans; and even in 
such cities as New York, Boston and Philadelphia, where the 
presence of a foreign element renders good government 
difficult, there has been a marked improvement since the era 
of unrestricted outlays. 

With us, unfortunately, many are possessed by the idea that 
the more we can borrow and spend on Provincial or municipal 
acc'ount the better. The frequent raids by the Provinces 
upon the Federal chest for " better terms " are justified on 
this ground; and because the Provincial Government obtained 
a large sum for the mining rights in Cobalt Lake it was seriously 
argued that the question as to whether the Legislature had 
the right to settle a question of title then before the courts, 
need not trouble us. Those who are now calling for heavy 
outlays on grandiose and possibly unsound schemes of public- 
( wnership, on the theory that the expenditure of so much 
mone v must benefit the local wage-earner, do not see that such 
borrowings are bound to impair our ability to obtain capital 
for enterprises of a private or semi-private character that 


would furnish employment and develop the Province at 
large to a far greater extent. 

Sir James Whitney should read the history of the old 
Municipal Loan Fund before spending another dollar on his 
transmission line. The municipalities of Upper and Lower 
Canada were authorised to borrow from the Government 
for public ends, such as the construction of railways, canals, 
harbors and roads. A sinking fund was created by the 
simple expedient of compelling them to pay 8 per cent, while 
the Government debentures on which the money was raised 
carried only six. The security appeared to be unquestionable 
for, amongst other things, the Government might order the 
sheriff to levy a tax running to 12^ cents on the dollar upon 
the assessed value of all the property within the municipality, 
as well as to seize the municipality's own property, whatever 
it might be. Yet first one municipality and then another 
defaulted. To save themselves the defaulters made a political 
issue of their indebtedness, and elected to the Legisla- 
ture the man who was likely to have most influence with the 
Government on condition that he should insist on its keeping its 
hands off — a most demoralizing condition of affairs. Finan- 
cially, the project left the Government of Upper Canada, which 
had the power to advance $1,500,000, face to face with 
overdue debts and interest amounting to $12,000,000, for 
which the Government of Ontario got ten or twelve cents on 
the dollar. The chances that the municipalities which intend 
to buy and sell electric power will default in their payments 
to Sir James are every whit as great. 


That we have been going too fast and too far of late in piling 
up Provincial and municipal debt is, I think, only too obvious; 
and with the Legislature now free to do as it pleases without 
let or hindrance within its wide sphere, and our public men 
now content to follow rather than to guide, to be not the rudder 
of the ship but the sail, tossed to and fro and carried about 
by every wind of doctrine, we may expect to witness a pro- 
digious waste of money on the public-ownership measures 

now in fashion, unless indeed the home and foreign investor 
takes fright and brings the orgy to a sudden and perhaps 
calamitous termination. What I am pleading for is that we 
should save ourselves from that day of wrath by turning to 
more economical practices and by inducing the Federal authori- 
ty to resume its former policy of keeping an eye upon the loose 
and erratic Provincial legislation which threatens us with 
a surplus of financial evils. 

It may be said by Mr. Aylesworth, whom everyone respects, 
that if a Province or a municipality chooses to go head and 
ears in debt, that is its own affair; the Dominion, if concerned 
at all, is only concerned in a remote degree. That is doubtless 
true from a lawyer's standpoint. But the foreign investor does 
not distinguish between our different loans, charging them 
all up, Federal, Provincial and municipal, to the borrowing 
entity known to him as Canada. A short time ago an in- 
fluential London newspaper, commenting on such facts as that 
Winnipeg's debt is greater than the combined debts of St. Paul 
and Minneapolis, while the debt of the Province of Quebec is 
double that of the State of New York, sinking funds deducted, 
said that " Canada is certainly going too fast " and " displaying 
a tendency to spend too freely;" the Dominion being confound- 
ed with its units. It was the same in the days when the State 
Legislatures and municipalities were recklessly incurring 
liabilities for public improvements — the British capitalist 
confounded their borrowings and expenditures with those of 
the Government at Washington, charging everything to the 
account of " America." In his standard work, " Public 
Debts," Professor H. C. Adams, an American scholar, relates 
that when an agent from Washington went to England to 
float a loan, Baring Bros, told him that, " if the States were 
left to control their own finances," many of them being at the 
time embarrassed, " the Federal Government could secure 
no money in London at any price." He quotes a similar case 
in 1844, where the European capitalists declined lending 
money to the Federal Government, " partly perhaps from real 
doubts as to the solidity of our institutions, and partly, 
probably, with a view to make us feel discredit so sensibly 


that our National Government should be induced to assume, 
as it has no right to do, the debts of the delinquent States." 
I need not labor the point. Any Canadian financier, including 
his worthy colleague, the Finance Minister, can tell Mr. Ayles- 
worth that we are judged in London, not alone by the debts 
contracted by the Ottawa Government, but by the debts and 
general financial standing of the Provinces and municipalities 
as well. Hence such Provincial legislation as that connected 
with the Electric Power experiment of the Ontario Govern- 
ment may very readily affect the credit of the Dominion as a 
whole, and, lest it do, should be disallowed whether intra 
vires or not. Just now, indeed, Canadian credit in London 
is not what it. was a few years ago, and Provincial laws should 
be scrutinised with unusual care. 


I now proceed with all due brevity to show on what 
other grounds the Federal Government would be justified, not- 
withstanding their close adhesion to the Provincial Rights 
doctrine, in disallowing much of the Electric Power legis- 
lation of Ontario. 

First of all, the Electrical Development Company has been 
treated with marked unfairness. Assuming that it was a 
monopoly, it was a monopoly created by the Ontario Govern- 
ment, which gave it its charter and franchises either directly 
by Act of the Legislature or indirectly through the Niagara 
Falls Park Commission or the Hydro - Electric, both 
Government agencies. If the rates of the Electrical De- 
velopment were considered excessive, there was nothing 
to hinder Sir James from regulating them by statute or from 
expropriating the whole investment. He certainly had no 
moral right to damage an enterprise in which so much British 
and Canadian capital had been sunk by starting Govern- 
ment competition, especially as its contract with the Park 
Commission, which spoke and acted for the Government, 
guaranteed (Section 16) that " the Commissioners will not 
themselves engage in making use of the water to generate 
electric, pneumatic or other power," except under certain 


hypothetical circumstances that have not come to pass. 
This was tantamount to pledging the Government not to 
enter the business of generating or by implication of trans- 
mitting electric power; and it is no excuse to plead that the 
Government itself is not actually doing this, but that it is 
being done through an arrangement between the Ontario 
Power Company, an American Company on the Canadian shore, 
and the Hydro-Electric Commission, which, with Mr. Adam 
Beck at its head, is the Government under another name. 
In the United States Sir James' action would be declared 
void on the elementary ground that it was a violation of 
contract. Our constitution makes no provision against 
unjust legislation of the sort, but the Federal Government 
has in times past disallowed it when detrimental to an existing 
investment and therefore prejudicial to the general interest. 
Thus when the New Brunswick Legislature chartered a 
local telephone company, Sir John Thompson disallowed 
the Act in 1889 because, amongst other things, it had " the 
effect of materially diminishing the value of franchises which 
the Legislature had previously given to another company." 
In this instance, the situation is worse since the Provincial 
Government has diminished the value of the franchises 
which it conferred on the Electrical Development Company 
by deliberately setting itself up in the business. 

Other cases of a like kind are no doubt to be found in the 
books, but this one must suffice. The New Brunswick Act 
was intra vires. So are Sir James Whitney's Acts. No one 
disputes that, and it is not necessary for him to assume a 
" swashing and a martial " air and attack imaginary persons 
for asserting the contrary. Nevertheless Sir John Thomp- 
son ruled that it was not in the general interest that 
a Provincial Legislature should injure or destroy exist- 
ing investments without compensation; through the instru- 
mentality of a rival corporation occupying the same field; 
and it would appear to be a fortiori that a Provincial Govern- 
ment should not itself become a competitor against a private 
investment which it has helped to establish and which it 
actually went out of its way to safeguard from its competition. 


The Dominion Government would not dream of building a 
Government railway running parallel with the line of a 
company which it had chartered and whose route it had 
approved; certainly not after the company had put several 
million dollars into the work. Mr. Fielding would say at 
once that such a policy would be detrimental to the public 
credit; yet is not the public credit imperilled in exactly the 
same fashion by the present instance of instituting Govern- 
ment ownership against private enterprise? 


Again, the provisions whereby Sir James forever stays 
the suits of those who consider the Electric Power legisla- 
tion affecting municipalities to be unjust and wrongful, 
would be declared unconstitutional in the United States, 
where the Judiciary is, as we should say, an estate of the 
realm and the people entitled to unrestricted access to it. 
No doubt, however, it is intra vires of the Provincial Legis- 
lature, but the question is whether legislation of that sort 
is tolerable in a British country with a Federal form of 
government, under which the Legislatures, though secondary 
bodies, exercise authority over our dearest possessions. 
The Imperial Parliament has recently bestowed plenary 
powers in certain cases upon such Government departments 
as the Treasury, the Local Government Board, the Board 
of Trade, Board of Agriculture and Education Department, 
their decisions when acting as, so to say, appellate tribunals 
being declared final; but a movement is on foot to abolish 
the practice and allow an appeal to the courts. For instance? 
the Old Age Pensions Act contemplates the possibility of 
the local pension committee making a mistake and allows 
an appeal to the Local Government Board, but the decision 
of the latter is conclusive. Similarly, a school teacher who 
has a dispute with the local education committee over his 
allowances may carry the case to the Education Department 
in London, but beyond it he cannot go; whilst the Board of 
Agriculture is the last resort open to a tenant with a grievance 
under the Small Holdings Act, and the Government Board 


of Trade to those who may complain of the administration 
of affairs connected with the Port of London. These matters 
are of no great concern to the general public, but the English 
newspapers, with the " Times " at their head, regard the 
denial of the right to appeal to the courts from such depart- 
mental decisions as nothing short of an invasion of British 
libeity. The " Times " recalls that to Blackstone the statute 
law appeared futile to secure the actual enjoyment of the 
great primary rights of an Englishman, if the constitution 
did not provide certain other auxiliary rights, of which the 
chief was the right of every British subject to apply to the 
courts for redress of injuries. 

The subject is attracting so much attention that a short 
time ago (see " Times," page 8, June 19, 1909), when the 
Chancellor of the Exchequer proposed, in valuing lands for 
taxation, to make the Government's valuation final, the 
Lord Chief Justice deemed it well to enter a dignified pro- 
test in these words: — 

" Time had been when the Judges had stood between the 
Crown and the liberties of the people, and had protected the 
people. That was a duty which was not likely ever again to 
fall upon them. If, however, certain things were true which 
they saw in the press, it might be that the Judges might be 
called upon in the future to protect the interests of the people 
against the Executive; but he hoped that the time would 
never come when it would be considered that the Executive 
Government was to be its own interpreter of Acts of Parlia- 

The Government forthwith amended its Budget measure 
by allowing an appeal to the courts. Sir James Whitney 
is doing precisely what Lord Alverstone condemns — not, 
however, in mere departmental matters but in matters 
ofj vital concern to all, acting as his own interpreter of 
Acts of the Legislature affecting property and civil rights, 
over-riding the decisions of the courts or denying the ag- 
grieved person liberty to go there — a truly amazing situa- 
tion in a democratic country. 


In a well-known Prince Edward Island case, Mr. R. W. 
Scott, while acting as Minister of Justice in the Mackenzie 
Administration, of which he was Secretary of State, disallowed 
in 1876 a Provincial Act on the ground that it was " retro- 
spective in its effects " and " deals with rights of parties now in 
litigation under the Act which it is proposed to amend, or 
which may yet fairly form the subject of litigation." The 
circumstances here are analogous if not identical with those 
we are discussing. Mr. Beardmore, of Toronto, enters suit 
with the view of setting aside parts of Sir James' legislation, 
whereupon Sir James declares by virtue of a fresh Act or 
amendment that all such actions shall cease and not be re- 
vived. Once more, is it in the general interest that this sort 
of tyranny should prevail? If he can hinder me from be- 
ginning or going on with a suit in a matter affecting my purse 
and property, what is to prevent him from leaving the civil 
courts without any suitors at all and administering the law 
by order-in-Council or Act of the Legislature after the manner 
of the Parliaments of France in former days? In short, where 
is this usurpation of power and denial of access to the consti- 
tuted tribunals to cease, if the Federal authority encourages it 
by not interveinng? 


By entering on a large expenditure for the delivery of 
Niagara power to certain municipalities in Western Ontario, 
Sir James raises several capital questions which, sooner or 
later, must be decided by competent authority. For example, 
granting that electric light is a general public convenience or 
necessity, like water or gas, can it be said that electric power 
is a public necessity or convenience in the same or in any 
sense? Is its sale by a municipality to a local manufacturer 
an industry in which all or even a majority of the ratepayers 
are interested, and towards the expense of which they should 
contribute? Are those municipalities which by reason of 
their remoteness from Niagara are debarred from purchasing 
its power, to be taxed for its transmission to a more fortunate 
few, while the Government does nothing to develop or trans- 


mit power to them from the falls, rapids or other potential 
sources in their own neighborhood? And what is the Domin- 
ion Government going to say to his establishing Provincial 
Government competition against the Cataract Company, of 
Hamilton, chartered by the Federal Parliament to take water 
from the Lake Erie level of the Welland Canal for the purpose 
of generating and selling power? 

In the New Brunswick case just spoken of, the Bell Company 
had been chartered by the Federal Parliament, as well as by 
the Provincial Legislature, to conduct a telephone business 
throughout the Province, and was on the spot and had spent a 
considerable sum in lines and exchanges before the local com- 
pany, incorporated by the Legislature, appeared; for which 
reason, together with that already mentioned, Sir John 
Thompson disallowed the Provincial Act, or, what amounted 
to the same thing, recommended its disallowance unless 
the Legislature repealed the objectionable clauses, on the 
ground that " the Act interferes with and restricts the opera- 
tion of an Act of the Parliament of Canada." If it is un- 
constitutional for a Provincial Legislature to charter a com- 
pany which invades the field of operation of another com- 
pany previously chartered by Parliament, can it be constitu- 
tional for a Provincial Government to start business on its 
own account, or under an alias, within that area? 

The Provincial Act validating Electric Power contracts 
with municipalities that had in substance been declared in- 
valid by the courts is, no doubt, like the other Acts hitherto 
spoken of, intra vires; that is to say, within its sphere the 
Legislature can now do anything, right or wrong. It will be 
remembered that certain municipalities had agreed by vote of 
the people to take electric power from the Government upon 
the condition, amongst others, that there should be a limit to 
the maximum price; but when the contracts came to be signed 
by the local authorities that clause had been eliminated, so 
that the ratepayers were being committed to an unstated, 
and, for the time, unascertainable responsibility. The Mayor 
of Gait refused to sign, and the court on being appealed to 
ruled that the contract had been vitiated by the omission 


of so important a part, and that for the T Mayor to^ have 
executed it would have been a breach of faith with the rate- 
payers; nevertheless Sir James at the ensuing session passed 
a law pronouncing it valid and binding. 

True, the Ontario Statute Book contains numerous Acts 
validating municipal by-laws, but in every instance, to the 
best of my belief, these were passed at the instigation of those 
who had voted for the by-laws and were to be bound by 
them, and then only after due notice had been given to all 
others interested. None, I believe, were passed, as in this 
case, at the request of the parties who were to secure contracts 
or other benefits under the by-laws ; and certainly none 
overrode a decision of the Superior Court or prevented the 
ratepayer who might dispute the binding force of an agree- 
ment substituted for that originally put forward in a by-law, 
from going to court to test its validity. 


So far as T know, only one case has occurred in Canada which 
is at all similar to this. Thirty odd years ago, Mr. Letellier, 
Lieutenant-Governor of Quebec, dismissed his Ministers 
notwithstanding that they had a majority in the Legislature. 
His conduct was impeached by the Conservatives, then 
in Opposition at Ottawa. He gave the reasons which 
had influenced him: amongst them, his Ministers had not kept 
faith with the ratepayers of Montreal, who had voted a bonus 
to a railway upon conditions as to the location of the line that 
had not been carried out. On the ratepayers objecting to 
paying, Ministers had got the Legislature to step in and de- 
clare in effect by an Act that, although they, as parties on one 
side to the contract, had not performed their part of it, the 
other parties to it, i.e., the Montreal ratepayers, were bound 
by it. Mr. Letellier said this was ex post facto legislation of a 
bad kind and warned the Ministers that he " could not consent 
to see Her Majesty's subjects despoiled of the rights guaran- 
teed them by Magna Charta, that their property should not 
be interfered with except in virtue of a judgment rendered by 
the tribunals of the country." The Liberal representation in 


Parliament supported Mr. Letellier and condemned without 
stint this particular action of the DeBoucherville Ministry. 
Sir Wilfrid Laurier and Sir Richard Cartwright were amongst 
those who voted that the Governor had done right in dismiss- 
ing them. 

The present case is more grave since the Ontario Govern- 
ment, really a party to the contract, for the Hydro-Electric 
Commission is either the Government or nothing, has unde'- 
taken to declare by Act of the Legislature, not before the 
courts had been invoked, but actually after they had found the 
mutilated contracts to be bad that, on the contrary, the 
mutilated contracts are good. Mr. DeBoucherville antici- 
pated an appeal to the Judiciary whereas Sir James boldly 
reverses its decision. Technically, it may be within the com- 
petence of the Legislature to do such things, but is the doing of 
them in the general interest? It would be difficult, I think, to 
conceive of a misuse of authority better calculated to bring 
Canadian institutions into disrepute at home and abroad. 


So far, it has been frankly admitted that the Provincial 
Acts complained of are intra vires. But I now venture to 
contend that the originating measure of all was ultra vires, 
that is to say, the Provincial legislation empowering the Park 
Commission or the Ontario Power Company to use the water 
of the Niagara River and supply power to the Hydro- 
Electric Commission. The Federal Parliament is by the B. N. 
A. Act given exclusive jurisdiction over navigation. In the 
United States, Congress controls navigation, because naviga- 
tion is held to be an agency of commerce, over which it has 
authority. The Niagara is a navigable river and an inter- 
national boundary river. The presence of the Falls does not 
detract in law or in fact from its navigability, or deprive Parlia- 
ment of its exclusive jurisdiction over the water which renders 
navigation possible in other portions of the river. The bed up 
to the middle of the channel may belong to the riparian owner 
and be subject to Provincial control, but it is held in England, 
the United States and elsewhere that the water flowing over 


the bed of a navigable, and, above all, of a boundary stream, 
belongs to the Crown or Federal authority, as the case may be, 
to the extent that exclusive jurisdiction is vested in it. 

If the reader will consult the record of Provincial Acts 
reported on by the Dominion authorities from 1867 to 1895, 
edited by Mr. W. E. Hodgins, of the Department of Justice, 
he will see what care Mr. Edward Blake and other Ministers 
of Justice on the Liberal side took to maintain the exclusive 
control of the Federal Parliament over navigable and inter- 
national rivers, and that Conservative Ministers were no 
less watchful. The subject has frequently come up in con- 
nection with Provincial Acts authorising the building of 
bridges across the St. Lawrence and St. John; and, without 
citing individual cases, I venture to assert that both 
political parties have entertained what would almost appear 
to be an extreme view of the monopoly of jurisdiction of 
Parliament over all such waters. 

In the United States, Congress maintains exclusive juris- 
diction. The Secretary of War, representing the Federal 
Government, deals with such questions as to how much 
water shall be taken from a navigable or boundary river 
for electric or other purposes. He dealt with the supply to 
be allotted to companies on the American side of the Niagara. 
Similarly, when an American company sought to use water 
from the American side of the Long Sault Rapids in the St. 
Lawrence, near Cornwall, it had to go to Congress for 
authority ; although for the purpose of carrying on the 
business it had been incorporated by the New York State 
Legislature. Here, however, the Ontario Government and 
Legislature have from the beginning assumed jurisdiction 
over the water in the Niagara, although to my mind it belongs 
exclusively to the Dominion, as much so as jurisdiction over 
the water of the Welland Canal. 

At the outset the Ontario Power Company apparently 
realized that the Dominion controlled the Niagara, for it 
obtained Dominion authority to do certain works ; but these 
were subsequently abandoned and an agreement entered into 
with the Ontario Government whereby it was granted the 


privilege of taking water from the river on payment of a 
rental, and of constructing the works necessary for that 

What the Dominion Government should do is to refer 
the case to the Supreme Court of Canada, as it is able 
to do under the Supreme Court Act, and be guided by 
the decision there given. That would relieve it of the re- 
sponsibility, which it may not like to assume, of deciding 
the question of its own accord. It is scarcely necessary to 
add that the sooner we know whether the Ontario Legisla- 
ture has been going beyond its jurisdiction or not, the better 
for the important interests concerned. 

If, however, the Ontario Government should refuse to 
agree to a reference of a special case to the Supreme Court, 
let an action be brought by a ratepayer, say, of Toronto, Gait 
or London, against the Hydro-Electric Commission, setting 
forth that its whole proceeding is unconstitutional and 
illegal for the reason given. The moment such an action 
was entered the Dominion Government would no doubt 
disallow or suspend the operation of the Acts pending a final 
decision. If they were held intra vires, the Ontario Legis- 
lature could re-enact them. If, on the other hand, it was 
held by the courts that the Dominion possesses an exclusive 
jurisdiction over the water in the Niagara and that the Acts 
are therefore ultra vires, then the entire box and dice of 
Sir James Whitney's legislation would fall to the ground, 
and the Dominion Government and Parliament enter into 
control. In that case we may be sure that Sir Wilfrid Laurier 
would protect vested interests as far as possible, though, of 
course, for any vexation or loss they might sustain the Ontario 
Government would be responsible; and also that he would 
redress the wrongs done to some of those interests and to 
the complaining municipalities, in so far as means of redress 
might lie within the constitutional powers of the Federal 


After this point as to who controls the water in a navigable 
and international river is determined, the more important 


question as to whether a Provincial Legislature is omni- 
potent within its sphere will still remain for adjudication. 

If the highest tribunal holds that it is omnipotent, that it 
can do as it likes with property even to the extent, 
as Judge Riddell said, of depriving the rightful owner 
of it and giving it to someone else; that it can establish 
State competition with private enterprise to which the 
Government, under another name, had pledged its word 
that there should be no State competition; that it can 
authorize and encourage the municipalities to embark 
on costly ventures of public ownership and then 
over-reach them in its contracts, besides declaring white 
what the courts have pronounced black, or denying 
those who suffer from its legislation the liberty to go 
to the courts at all — in that event, of course, it will be 
incumbent on all who have or expect to have a stake in the 
country to agitate for amendments to the constitution. As 
" Bystander " observes, we have not by crossing the ocean 
to a British dominion forfeited the protection of Magna 
Charta, and must recover it somehow if we are to be really 


September 1st, 1909.